Our portfolio includes 45 stocks spanning six dynamic investment themes with long runways for growth, explains Adam Johnson; here, the editor of Bullseye Brief offers an update on some of his top ideas within the financial space.
While I could probably make a case for several large banks, I’m going with one that combines safety, upside and a dividend — Bank of America (BAC). BofA has twice as many deposits as loans, which is very conservative.
Additionally, the bank could come up with $555 billion in cash if needed, and could secure another $632 billion in loans from the FDIC for a total $1.1 trillion, which is more than half its deposits. So even if half the depositors wanted their money back, BofA could comply.
As a direct result of Silicon Vally Bank closing its doors, BofA saw inflows of $15 billion in three days. BofA’s fortress balance sheet makes it a safe haven of choice.
Blackstone (BX) is the undisputed private equity leader, and the stock’s decline amid market volatility has provided an attractive entry point. BX is a stock to buy on pullbacks because it generally recovers faster than the market.
Blackstone is a money machine. The company earns fees by managing client assets and capturing profits when it invests its own capital, typically alongside clients. Profits have topped analyst estimates by an average of 25% in five of the last ten quarters, though challenged capital markets my pressure exit multiples and keep earnings flat with last year.
That said, the stock is historically cheap at 17 times forward estimates and yielding 5%. BX typically trades at 30-35 times earnings. As the dominant operator in a business defined by legendary founder Steve Schwarzman, Blackstone should probably be a core holding.
Charles Schwab (SCHW) is the largest US stock brokerage firm and twice the size of its next closest competitor, with $7.5 trillion under management across 33 million accounts. The company also operates as a well-capitalized and sizable bank, at $460 billion in deposits and $40 billion in loans.
As regulators recently forced several regional banks to close their doors, Schwab attracted $17 billion in new assets looking for a home. This vote of confidence by nervous depositors sends a strong signal to potential investors about Schwab as a beacon of trust.
I see four reasons to buy shares of Charles Schwab now amid current chaos enveloping the sector — customers are bringing new money onto the platform; structural changes which created the selloff have begun to reverse; insiders are buying; and the stock is historically cheap. I think the stock is a buy.
